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Economists are sounding the alarm that inflation might escalate beyond current expectations, regardless of any potential resolution to the ongoing conflict.
According to Taylor Nugent, a senior economist at NAB who spoke to the Australian Financial Review, “Even if the conflict is resolved swiftly, the impact of the cost shock has already been significant.”
Nugent anticipates that the conflict’s effects will rapidly manifest in various consumer prices.
Belinda Allen, head of Australian economics at the Commonwealth Bank of Australia, forecasts that if the global oil benchmark, Brent Crude, remains around $US120 per barrel until June before dropping to $US80, headline inflation could rise to 5.4 percent by June.
However, if Allen’s estimate turns out to be on the lower side and oil prices surge to $150, taking twice as long to decline, inflation could reach a peak of 6.4 percent in June.
NAB economists anticipate headline inflation to reach five per cent in the middle of the year.
“The macro-economic outlook appears to be transitioning towards a more treacherous phase, presenting downside risks to growth,” NAB Chief Economist Dr Sally Auld said.
“While this primarily reflects a retail fuel price impact, we are also cognisant that other impacts will accumulate relatively quickly.A More Treacherous Phase read.
“For example, higher airfares will flow through into official price data from April for domestic and May for international flights. “
But the economic outlook remains “highly uncertain”, Allen said.
“The Strait of Hormuz is unlikely to reopen quickly, despite ongoing reports of US-Iran talks … however, it is difficult to have conviction on the path of the conflict, “she told AFR.
But those figures only covered February, and therefore didn’t capture any of the inflation caused by skyrocketing oil prices and other flow-on effects from the war in Iran.
All four major banks predict the RBA to pass a third-consecutive rate hike in May, which would lift the cash rate to 4.35 per cent in response to rising inflation.
CBA economists expect inflation to moderate in 2027 as demand slows and unemployment edges higher.
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